GST: A Brief analysis of key challenges faced by the businesses since the inception of new tax regime

The decreasing GDP numbers are a cause of great concern for the government, and the implementation of GST has made the situation even more complicated. Recently, the GST council reviewed the challenges being faced by the businesses after the first quarter of its implementation and also announced some structural changes in the new tax regime.


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Let us review the key challenges of GST during its first quarter of roll out.

1) GST awareness: It is not a hidden fact that a large number of businesses are still unfamiliar with the new tax regime and this confusion regarding the concept and requirements had created a lot of trouble for them in the initial days. Initially, the traders were hesitant to do large trades which not only created a hurdle for the acceptance of GST but also affected the business drastically.

2) Tax on reverse Charge from unregistered vendors: This specific cause has been the bone of contention so far. According to the Section 9(4) of Central Goods and Services Tax Act, if a purchase is made from an unregistered vendor, the liability to pay tax is transferred to the buyer.

This affected the small and unorganised sector the most as big businesses avoided purchase from unregistered vendors and many of them had to shut down their business due to the reduction in customer base.


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3) Technology: In the new tax regime, technology plays a very pivotal role, and it has been a challenge for both, government and the business since its roll-out. Till now the basic structure of GSTN portal is not entirely functional, and most of the businesses who try to comply with GST have complained that they are facing a lot of trouble while filing the GST on GSTN portal.

4) Accounting System: A large number of businesses were not following the practice of maintaining proper account books, but with the implementation of GST, it has become a necessity as without appropriate records they won’t be able to receive the credits. To maintain accounts as per GST, some businesses are moving towards accounting software providing GST solutions, but as the GST law is not stable, it is difficult to provide accurate GST compliance reports for any accounting solution.

5) Challenges to Exporters: As per the GST provisions, the exporters were to get a monthly refund up to 90% of taxes paid but subjected to strict compliance and completion of procedure for reimbursement. This has resulted in blocking up of a significant amount of working capital of the exporters due to delay in compliance and has affected their business negatively.


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6) Challenges to the Service Providers: Under the new tax regime, service providers exporting services are required to take LUT / bond, to export without payment of duty. But most of the small businesses with low turnover were not eligible for LUT and hence they had to apply for bond from accessing officer. To get the bonds, the businesses were required to furnish a bank guarantee of a certain amount which resulted in locking up of their capital.

7) Tax rates: In the initial days, the business faced the challenge to get the correct rate of tax applicable on the products which in turn delayed the invoicing to the customers. The GST rates were based on old laws, and due to the technicalities, the hardships of these taxes could not be envisaged correctly.


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The GST council announced some structural changes in the tax regime in its meeting which was convened on October 6. The reverse charge mechanism was put on hold until March 31, 2018, and the bank guarantee which was required to obtain LUT bonds was also relaxed. The refund process was made hassle-free for the exporters, and the rule which required the business with a turnover below Rs 1.5 crore to fill monthly returns has been relaxed, and they are now required to file quarterly returns instead.

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